British banks had in April lost a high court appeal against tighter regulation of payment protection insurance (PPI), which can cover repayments on credit products for consumers who for example lose their jobs.

Barclays' announcement came as Britain's entire banking industry said on Monday that it had abandoned its legal fight over the mis-selling of PPI, paving the way for compensation for thousands of customers.

The British Bankers' Association (BBA) said it would not appeal after it lost its high court challenge last month.

Barclays added in a separate statement: "While important aspects of the handling of PPI complaints, and therefore the cost of doing so, are not yet certain, Barclays is taking a provision to cover the cost of future redress and administration of £1 billion in the second quarter 2011."

The move comes after British rival Lloyds Banking Group had last week said it was setting aside £3.2 billion to compensate customers, effectively pre-empting Monday's announcement by the BBA.

PPI became controversial after it was revealed that numerous consumers had been sold the insurance without understanding that the cost was being added to their loan repayments.

Britain's Competition Commission has since banned simultaneous sales of PPI and credit products, such as personal loans or mortgages.